Bank of Israel Annual Report of the Banks' Clearing House Committee 2013 © Bank of Israel Passages may be cited provided source is specified ISSN 1565-3358 Catalogue 0000000 Typesetting and design by the Bank of Israel Printed in Israel by Maor Wallach, Jerusalem http://www.bankisrael.org.il Annual Report of the Banks' Clearing House Committee, 2013 CONTENTS Preface ....................................................................................................................................................5 1. Main Developments in 2013 ..............................................................................................................6 a The Banks’ Clearing House Committee .........................................................................................6 b. The Lawyers Committee .............................................................................................................11 c. The Body for the Resolution of Disputes between the Banks— clarifiers Panel ........................12 2.The Banks’ Clearing House ..............................................................................................................13 a. Banks’ Clearing House Committee .............................................................................................13 b. Paper-based (Checks) Clearing House ........................................................................................13 c. Masav (Automated Clearing House) ...........................................................................................15 3. Statistical data and analysis of trends ..............................................................................................16 a. The Paper-based Clearing House ................................................................................................16 b. Masav ..........................................................................................................................................19 APPENDICES .....................................................................................................................................22 Appendix A: Members of the Banks’ Clearing House Committee and their alternates ......................22 Appendix B: Members of the Banks’ Clearing House and the network of representations ................23 Appendix C: Clarifiers for resolving disputes between Banks’ Clearing House members .................25 Appendix D: Major events in the past decade .....................................................................................26 Annual Report of the Banks' Clearing House Committee, 2013 The 2013 Annual Report of the Banks' Clearing House Committee is presented herewith to the Banks' Clearing House Committee members, in .accordance with Part A, Chapter 101, Section E of the Clearing House Rules 4 Annual Report of the Banks' Clearing House Committee, 2013 Preface The payment and settlement systems in Israel have been changed considerably in recent years, including major changes in the activity of the Banks’ Clearing House—the Paper-based (Checks) Clearing House and the interbank Automated Clearing House (known by its Hebrew acronym Masav). The main changes include: settlement processes were brought in line with the Zahav (RTGS–Real Time Gross Settlement) system environment, the Paper-based Clearing House system operated by the Bank of Israel has been replaced, changes have been made in the settlement sessions and the manner in which they are managed, manual settlement has been reduced considerably, and changes have been made in the settlement processes at Masav. A number of important issues feature on the agenda of the Banks’ Clearing House Committee at the beginning of 2014. These include advancement of the Check Truncation Law, which regulates the move from the physical settlement of checks to electronic settlement and the issue of check destruction; implementation of the planned reform in the issue and settlement of corporate securities, including computerization of the process; issues that arose at the Joint Committee headed by the Director General of the Prime Minister’s Office, which is acting to reduce the amount of unreported economic activity—the shadow economy—in Israel’s economy by curtailing the use of paper-based means of payment (funds and negotiable checks) and by increasing the use of advanced electronic means of payment; revision of the Banks’ Clearing House rules, including the inclusion of a diamond denominated accounts agreement for the purpose of regulating the work processes between the branches of the banks providing interbank settlement services in accounts that are designated for diamond transactions; and the processing of other issues, insomuch as they arise, in connection with the increased oversight of the Automated Clearing House and Automatic Banking Services (known by its Hebrew acronym of Shva), bodies that were declared as designated payment systems in July 2013. In the past, we have succeeded in implementing extensive and significant changes. By virtue of the efforts and willingness of all settlement members to be at the forefront of the technology in the field, and by virtue of the cooperation between the members of the Banks’ Clearing House Committee, I believe that this year as well we will succeed in coping with the challenges facing us. With thanks and regards, Ronit Chitayate Chairperson 5 Annual Report of the Banks' Clearing House Committee, 2013 1. Main Developments in 2013 a. The Banks’ Clearing House Committee The Banks’ Clearing House Committee convened once a quarter in 2013 (in February, May, August and December), and discussed various issues. The main issues that were discussed are presented below: End to the maintenance of the Access paper-based clearing house operation system In November 2012 the Bank of Israel put in place an advanced system for the operation of the Paper-based (Checks) Clearing House. From the business aspect, the new system is similar to the previous system, with changes made for the purpose of reducing the amount of manual work and replacing it with automatic processing in order to enhance work processes and to increase the extent of oversight. After the system was fully integrated in the production environment, the Bank of Israel decided to stop maintaining the previous system. This system continued to serve the participants, in their current activity and for use as backup in the event of malfunction. Participants were required to make suitable preparations and to develop an independent replacement system, or to maintain the old system themselves. Abolition of manual settlement In the first clearing house session, presentations and returns of nonmagnetic drafts are transferred. These are drafts which the banks transfer between each other, such as manual debits and credits, returns of manual debits and credits, and payments in respect of securities issuances. Since manual settlement inevitably involves a high level of risk, in 2009 a subcommittee was established for the purpose of advancing the abolition of manual settlement and transferring drafts settled manually to electronic settlement or to advanced and secure payment systems. The subcommittee examined the transactions that were settled manually and ways of transferring them to electronic settlement. In Section 3 it can be seen that manual settlement activity decreased considerably during recent years. In the years 2011, 2012 and 2013 the amounts processed in this way fell by 40, 8.5 and 15 percent respectively. The Banks’ Clearing House members are continuing to work to reduce manual settlement until it is completely ended. In this respect, a decision was made to change the manner in which securities issuances are settled in place of the current manual settlement process. In order to advance the reform in the process of corporate securities issuance and settlement, a committee headed by the Bank of Israel and the Israel Securities Authority, in cooperation with the stock exchange and the banks, was established in 2011. The committee prepared a reform 6 Annual Report of the Banks' Clearing House Committee, 2013 program, the main elements of which are the institution of a system that will collate the exchange of information, funds and securities between the entities involved in the process. The Tel Aviv Stock Exchange will be responsible for the development and maintenance of the system, on the basis of the infrastructures which the clearing house currently uses in order to connect between its members. Apart from the actual development of the system, major changes will also be necessary in processes such as bid offers by institutional bodies and account debiting authorizations. The committee’s recommendations were presented at the Payments and Settlement Council and a green light was given for its advancement, subject to the stock exchange’s agreement to develop the system. In the course of the Banks’ Clearing House Committee’s discussions during 2013, the committee’s members agreed that the date for final preparation for the process of corporate securities issuance will be the same as the date for the complete abolition of manual settlement activity and the termination of the relevant clearing house session. Box 1: Reform of the payment and settlement system in recent years During recent years the Bank of Israel has spearheaded a reform in the payment and settlement systems, focusing on matching all of the payments systems in Israel to generally accepted international rules. These rules refer inter alia